Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
RIL: Weakening fundamentals - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Oct 31, 2001

    RIL: Weakening fundamentals

    At first glance, Reliance Industries Ltd. (RIL) seems to have reported a sharp drop in net sales of 26.1%. However, YoY effect is due to the inclusion of merchant sales in last year's numbers. Till last fiscal, RIL was exporting petroleum products for Reliance Petroleum Ltd. (RPL).

    (Rs m) 2QFY01 2QFY02 Change 1HFY01 1HFY02 Change
    Net Sales 76,840 56,790 -26.1% 136,960 114,350 -16.5%
    Other Income 760 1,680 121.1% 1,540 2,950 91.6%
    Expenditure 63,520 44,330 -30.2% 112,070 90,140 -19.6%
    Operating Profit (EBDIT) 13,320 12,460 -6.5% 24,890 24,210 -2.7%
    Operating Profit Margin (%) 17.3% 21.9%   18.2% 21.2%  
    Interest 3,330 2,550 -23.4% 6,310 5,120 -18.9%
    Depreciation 3,810 4,220 10.8% 7,470 8,180 9.5%
    Profit before Tax 6,940 7,370 6.2% 12,650 13,860 9.6%
    Tax 340 350 2.9% 620 660 6.5%
    Profit after Tax/(Loss) 6,600 7,020 6.4% 12,030 13,200 9.7%
    Net profit margin (%) 8.6% 12.4%   8.8% 11.5%  
    No. of Shares (eoy) 1,054 1,054   1,054 1,054  
    Diluted Earnings per share* 25.1 26.6   22.8 25.1  
    P/E Ratio   9.5     10.2  

    Merchant sales in 2QFY01 were Rs 16,730 m. Adjusting for merchant exports, net sales from core business has declined by 5.5% YoY. This is below our expectation of 2% growth. That said, we had mentioned the possibility of downside risk being greater on topline for 2QFY02, as volumes could not have entirely compensated for the erosion in realisations. In fact, the company has reported a 2% decline in sale volumes for 1HFY02. On the other hand production increased by 9.1% but inventory value has declined YoY. This could indicate a sharp drop in final product realisations.

    Similar to net sales, operating expenses of the previous period include cost of merchant exports, which is leading to a large YoY effect. Adjusting for the same, operating expenses have decreased by an estimated 5.3% and 0.4% respectively for the quarter and half year ended September '01. Lower costs are largely due to raw material expenses, which have declined by 13.6% YoY for the concerned quarter. With a downturn in the global and domestic economy average naphtha prices declined for the concerned quarter by 8% YoY. However, any relief from lower naphtha prices was denied with a larger drop in final product prices. Therefore, although operating margins are showing an increase, core business margins (petrochemicals) are estimated to have marginally declined by 30 basis points for 2QFY02 and 40 basis points for 1HFY02.

    This is the third consecutive quarter the company has reported a YoY drop in interest expense. This is largely due to the ongoing capital cost reduction exercise. RIL continues to refinance high cost debt with low cost borrowings. Also, the company has re-paid a part of its long-term debts. Depreciation costs have increased largely due to the change in method of depreciation from straight line to written down value method and revaluation of assets. Depreciation costs for 2QFY01 have been re-stated higher by Rs 410 m on account of change in method adopted during FY01. Consequently, pre-tax profits for the period are lower by the same amount.

    Other income over the concerned periods has exhibited a dramatic increase. This is primarily due to dividends earned from Reliance Petroleum Ltd. (RPL)., which are being accounted for on a pro-rata basis over the four quarters. Other income also includes interest earned on bonds issued by Reliance Infocom.

    At Rs 254 the RIL scrip is trading on a multiple of 10.2x 1HFY02 annualised earnings. Over the past six months valuations have retreated to reflect fundamentals. On a consolidated basis, the company earns Rs 33.6 per share.



    Equitymaster requests your view! Post a comment on "RIL: Weakening fundamentals ". Click here!


    More Views on News

    Sorry! There are no related views on news for this company/sector.

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 18, 2017 11:16 AM


    • Track your investment in RELIANCE IND. with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
    • Add To MyStocks


    Detailed Quarterly Results With Charts